Bear Stearns Awakens Bulls

Word that Warren Buffett might take a stake in the firm boosts the financials. GM is also strong.
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Updated from 4:16 p.m. EDT

Stocks in the U.S. closed higher Wednesday, driven by the end of a two-day strike at

General Motors

(GM) - Get Report

and word that one of the world's most prominent investors is considering buying a big stake in

Bear Stearns

(BSC)

.

The

Dow Jones Industrial Average

gained 99.50 points, or 0.72%, to 13,878.15, its best finish in two months. The

S&P 500

was up 8.21 points, or 0.54%, at 1525.42, and the

Nasdaq Composite

was better by 15.58 points, or 0.58%, at 2699.03.

Bear Stearns soared 7.7% following a report in

The New York Times

that said Warren Buffett was among those contemplating the purchase of up to 20% of Bear Stearns, a Wall Street bank hit hard by the recent troubles in the financial markets.

The article also named

Bank of America

(BAC) - Get Report

,

Wachovia

(WB) - Get Report

and two Chinese firms as potential investors.

The news lifted the broader financial sector and proved more than enough to offset Goldman Sachs' decision to lower its earnings numbers on

Merrill Lynch

(MER)

. The Nasdaq Financial 100 rose 0.9%, and the NYSE Financial Sector Index was up 0.6%. Merrill, though, lost 0.5%.

Stock indices were already rallying, even before the Bear Stearns development, after a tentative labor deal ended a two-day strike by

General Motors

(GM) - Get Report

production workers.

The contract puts the responsibility for retirees' health care into the United Auto Workers union's hands, while certain jobs were guaranteed by the automaker. GM, a component of the Dow, ended 9.4% higher at $37.64.

Rival

Ford

(F) - Get Report

gained 6.5%, and parts makers such as

Lear

(LEA) - Get Report

,

Johnson Controls

(JCI) - Get Report

and

Visteon

(VC) - Get Report

finished stronger by between 2% and 6%.

"While everyone knew GM and the UAW were headed to an agreement, traders were very heartened by the news," said Larry Wachtel, senior market analyst with Wachovia Securities. "The Bear Stearns news jolted the financial sector late in the day. That one-two punch really pushed this market higher. It was encouraging, even as traders ignored souring economic data today."

On the economic front, durable-goods orders for August were weaker than expected, falling 4.9%. Excluding transportation, orders declined 1.8%. Orders advanced 5.9% in July.

Ian Shepherdson, chief economist with High Frequency Economics, said that traders ignored the poor durable-goods number because it will have little influence on the

Federal Reserve's

rate policy.

"These data capture little, if any, of the impact of the market turmoil," said Shepherdson. "The September and October numbers will be key inputs for the Fed's Dec. 11 meeting."

Meanwhile, Philadelphia Fed President Charles Plosser commented late Tuesday about economic activity in the U.S., stating that "last week's action to lower the fed funds rate target was appropriate."

Plosser, who usually delivers hawkish commentary, added that he does not take moderating inflationary data as a sign that inflation is no longer a risk, although he does find it encouraging.

Breadth was positive, and on the

New York Stock Exchange

3.17 billion shares changed hands, as advancers topped decliners by a 2-to-1 margin. Volume on the Nasdaq reached 2.01 billion shares, with winners outpacing losers nearly 3 to 2.

One of the day's laggards was

SLM

(SLM) - Get Report

, better known as Sallie Mae, who said a buyout group led by J.C. Flowers, Bank of America and

JPMorgan Chase

(JPM) - Get Report

doesn't expect to complete the acquisition of the company under the existing terms of the agreement.

Sallie Mae said it would "pursue all remedies available to it to the fullest extent permitted by law." Shares fell 2.7% to $45.01.

Aside from Goldman's move on Merrill, several other analysts offered coverage changes, including JPMorgan, which downgraded office supply retailer

Staples

(SPLS)

to underweight from neutral. The firm raised

Office Depot

(ODP) - Get Report

to overweight from neutral. Staples eased 0.1% to $21.45, while Office Depot jumped 5.4% to close at $20.25.

The broker also raised its rating for

CVS

(CVS) - Get Report

to overweight from neutral, but cut

Walgreen

(WAG)

to neutral from overweight. CVS rose 0.8% to $39.19, and Walgreen gained 1.8% at $47.71.

Citigroup initiated coverage of several handset companies. The firm started coverage of

Palm

(PALM)

as a sell,

Motorola

(MOT)

as a hold and

Research In Motion

(RIMM)

as a buy. Separately, Lehman raised its price target on RIM.

Palm shed 2.2% to $15.43, while Motorola finished higher by 0.5% at $18.72. RIM advanced 2.3% to $99.

Away from stocks, oil pushed back above the $80-a-barrel level despite a bearish inventory report from the Energy Department. The front-month November contract added 77 cents to close at $80.30 a barrel.

The Energy Department's weekly inventory report showed that crude stocks unexpectedly rose by 1.8 million barrels last week. Gasoline stocks rose by 600,000 barrels, and distillates increased by 1.6 million barrels.

Treasury prices crept higher, with the 10-year note up 3/32 in price, yielding 4.62%. The 30-year bond added 6/32, yielding 4.89%. The dollar was mixed against other major world currencies.

Overseas indices were mostly higher. Japan's Nikkei 225 tacked on 0.2% overnight, London's FTSE 100 added 0.6%, and Germany's Xetra Dax was up 0.5%.